Reviving reputation models of international debt

Harold Cole and Patrick Kehoe

Quarterly Review, 1997, vol. 21, issue Win, 30 pages

Abstract: A traditional explanation for why sovereign countries repay debt is that they want to keep a good reputation so they can easily borrow more. This explanation does not hold if a country has access to an adequate means of savings regardless of the country's past actions. With such access, a country gets only transient benefits from maintaining a good relationship with bankers, and such benefits cannot support borrowing. However, if a country is involved in a myriad of trust relationships, the country's reputation can spill over to a nondebt relationship which has enduring benefits. Such a spillover can allow a country's reputation to support a large amount of borrowing.

Keywords: International; finance (search for similar items in EconPapers)
Date: 1997
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